Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that there are a number of key risks that must be properly managed by government departments to avoid billions of pounds of public sector investment being swallowed up in extra bureaucracy, red tape and inefficiency.

Mr Leigh was speaking as the Committee published its 42nd Report of this Session, which examined how the Department for Education and Skills, the Department of Health and the Department for Transport are using their shares of the extra £61 billion in public spending. The Committee focused on the complexity of the departments' service delivery chains, how they can secure further improvements in service quality, and how they measure their progress in improving service quality.

In July 2002, the Chancellor announced an increase in public spending of some £61 billion over three years, targeted at improving key public services. The Department for Education and Skills, the Department of Health and the Department for Transport are the three recipients of the largest increases in resources. If such large increases in funding are not properly managed there is a risk that resources will be wasted on misdirected effort, uncoordinated activity or an expansion in unnecessary bureaucracy.

There are a number of key issues that departments need to manage if they are to convert successfully their increased resources into better public services. If departments minimise the complexities of their service delivery chains then fewer resources will be wasted on unnecessary bureaucracy. By securing more equitable access to improvements departments should be better placed to manage the risk of unacceptable differences in the quality of public services locally. Through better planning and investment there are more likely to be sufficient numbers of skilled front line staff so that improvements in public services are sustainable in the longer term. By having reliable information including benchmarking and productivity measures departments should be in a stronger position to identify and tackle poor quality services quickly and also to demonstrate where performance is improving.

The Committee found that the three departments need to gain assurance that their delivery partners have sufficient capability and capacity to deliver services effectively. All three deliver services indirectly through a network of agents and partners and, if they are to identify and manage the risks of delivering through such partners, each department needs to undertake regular appraisal of their partners' strengths and resilience, and to secure a clear view of the constraints and opportunities they face. The Department for Transport, for example, relied on Railtrack to deliver upgrades to the West Coast Mainline but mismanagement led to serious cost and time overruns.

The departments should work to simplify complex delivery chains and financing mechanisms, and establish a direct link between funding and the specific improvements in service quality they expect the resources to deliver. Schools for example, are funded through many channels including the Department, local authorities and the Learning and Skills Council. By aligning more closely increased funding to specific objectives and targets for improved service quality the departments will be in a stronger position to gauge whether resources are being used effectively.

Departments need to be satisfied that expenditure on higher salary levels is genuinely needed to attract more skilled or highly qualified staff. Otherwise additional resources for service improvement can tend to leak away into higher pay without matching productivity improvements.

The Departments of Health and Education need to balance devolving responsibility for service delivery to the local level with not letting wider service improvement be jeopardised by pockets of poor or failing performance. In devolving responsibility departments seek to respond to the demands and expectations of service users at the local level. They need, however, to retain sufficient leverage, including contingency plans, so that they can take prompt action to deal with unacceptable variations in service quality.

The Department of Health needs to engage with those delivering services directly to the public to identify and tackle the reasons for any unacceptable disparities in service quality. They need to understand the reasons why the quality of services provided by some delivery agents is better than that provided by others, for example the variability in the quality of services delivered by GP practices. Where disparities are unacceptable departments need to incentivise, provide support and, where necessary, penalise delivery agents to bring up their level of performance to that of the best performers.

In addition to international comparisons the three departments should make use of the information on the performance achieved by their equivalent organisations in Scotland, Wales and Northern Ireland. Devolved arrangements have now been in place for several years providing an opportunity to examine whether new approaches are proving to be effective in delivering better quality services.

The three departments need to simplify the complex web of performance targets and develop productivity measures which provide an accurate and meaningful picture of service delivery performance. For example the Department for Education and Skills measures productivity in a way that does not reflect the extent of improvement in educational quality. For instance, productivity can be increased by making class sizes larger regardless of any impact on pupil attainment.

Departments should share information on their plans to increase delivery capacity more widely among key suppliers. Departments can find themselves competing for suppliers particularly in the construction industry when both the Department of Health and the Department for Education and Skills have significant building programmes. The Department of Health, for example, has a capital investment programme in modern buildings and equipment totalling some £15 billion over the next three years. Without careful management there can be an inflationary impact on the cost of construction for all departments.

Mr Leigh said today:

"It is vital that government departments charged with spending billions of pounds of extra taxpayer's money, particularly in health, education and transport, make this count, resulting in real improvements in our public services. There are a number of key risks that must be properly managed to avoid this investment being swallowed up in extra bureaucracy, red tape and inefficiency. To take one example, extra resources may be used to fund pay settlements for existing staff without expanding capacity or improving productivity. I urge Departments to ensure that increases in public sector pay are directly linked to a better quality of service to the public."